Events

Income Volatility, Uncertainty, and Psychological Health

Abstract: It does not get any more preliminary than that. In a few weeks, I will submit my first R01 to NIA. I want to use this brown bag to get your feedback and hear your thoughts.

We argue that income fluctuations or income volatility is a defining aspect of the financial lives of the poor. Unemployment, odd jobs, and self-employed income that depend on economic activity are some of the reasons why incomes may rise and fall sharply over time. Because the poor have limited access to credit and insurance, unless they save when income is up, their consumption will move up and down together with income. Because they have little slack in their budgets, a reduction in income may have drastic consequences, forcing them to skip meals or to go without heat. The allostatic load framework posits that uncertainty about how to safeguard one’s future wellbeing generates stress and has long-term health consequences (McEwen & Peters 2015; Peters et al. 2017). Yet there is limited evidence about the effects of income volatility on psychological health (Prause et al. 2009) and the existing evidence cannot be given a causal interpretation because of measurement error, omitted third factors, and reverse causality. We propose two randomized experiments to study the causal effects of income volatility. The design permits disentangling the effects of different aspects of income volatility – predictable income volatility, uncertainty, and ambiguity – that would require distinct policy interventions. Tangentially, we hope to contribute to the understanding of the effects of the increased economic insecurity associated among others with the emergence of the gig economic and zero-hour contracts.